answer the question

2. Based on the given case below, explain the effects of lotto winning on individual labour supply (winner who quits and winner who continues working) with the aid of diagrams (indifference curve and budget line). World Lotto Winners: Who Quit? of Work Of the many reasons people work, monetary com- 7 percent of those winning jackpots of $1 million or pensation usually is the leading incentive. Indeed the less quit. Bear in mind that a $1 million jackpot is word compensation implies that workers require reim- paid as 20 annual payments of $40,000, with bursement or indemnification-in this case, for the $10,000 more a year being withheld for taxes. Con- loss of utility associated with forgone leisure. versely, those who won large jackpots were much Although most of us profess to like our work, more likely to quit. Seventy-seven percent of the win- the economic perspective suggests that many of us ners of jackpots of $4 million or more chose to quit. would quit our jobs if we were assured of a sub- Note from the charts that the larger the jackpot win stantial amount of nonlabor income each year. nings, the greater was the percentage of workers Quite simply, nonlabor income reduces our incen- who opted out of the workforce." tive to work. The greater the amount of nonlabor income, the greater the likelihood of our quitting Source: Data from Seattle Times survey, Jack Broom "Lotto our jobs. Winners-Unlike Fantasy. Most jackpot Winners Don't Say. A Seattle Times survey of lottery winners in the "Take This job and Shove It'," 1999. state of Washington supports this perspective. Three- * A more extensive survey of lottery winners also supports quarters of the Lotto winners surveyed were this generalization, See Guido W, Imbens, Donald B: employed when they won. Rubin, and Bruce Sacerdote, "Estimating the Effects of Observe in the accompanying figure that winners Unearned Income on Labor Supply, Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," of "small" jackpots tended to continue to work. Only American Economic Review, September 2001, pp. 778-94. Less than $1 million $1 million to 52 million Between $2 million and 54 million or more 14 winners $5 winners $4 million: 19 winners 13 winners 2934 23% 71% 47% 535% 93% 77% Winners who quit Winners who continued working